Etihad-backed Jet Airways could face further ratings downgrade

Credit rating agency ICRA is reviewing the rating given to troubled Indian airline Jet Airways, with a strong possibility of a further downgrade.

ICRA has currently assigned Jet Airways a B– (minus) rating on a long-term outlook, which denotes a high risk of default regarding timely servicing of financial obligations. Long-term outlook covers financial instruments having maturity of one year and beyond.

On a short-term basis, the ICRA rating for Jet’s debt instruments currently have an A4 rating, which is considered to have minimal degree of safety regarding timely payment of financial obligation. Such instruments carry very high credit risk and are susceptible to default.

“We have undertaken a rating review of Jet Airways as none of the airline’s proposed fund raising plans have materialized yet. This is expected to lead to further financial distress in the company and we are watching the situation closely, a senior official at ICRA, told Arabian Business.

A further downgrade on credit rating to Jet Airways could put borrowings by the carrier under the very high risk category.

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The ICRA executive, who did not want to be identified, said the rating agency is constantly checking with all banks from which Jet has borrowed funds on the status its debt servicing.

“So far Jet Airways has not defaulted on any of its payments to the banks. There is, however, anticipation that if the airline’s efforts to raise funds do not materialize immediately, there is a strong possibility of it defaulting on its payment obligation to banks in the near future,” the official said.

The executive said they gather that Jet has either already negotiated with some of its creditors such as its leasing companies for deferred payments or has defaulted on payments to some of its lenders/vendors other than banks. The airline is also said to have delayed salary payments to its employees.

A Jet Airways spokesperson did not respond to Arabian Business on this issue.

Jet is currently understood to be in talks with its existing partner Etihad Airways for a possible deal under which the Abu Dhabi-based airline could increase its equity stake in the company up to 49 percent, permissible under India’s FDI (foreign direct investment) rules.

Airline industry sources said besides additional equity infusion, Jet promoters are also seeking soft loans from Etihad to help the carrier to come out of its burgeoning debt and stabilize its operations financially.

Sources said even if Etihad agrees to bail out Jet with a equity-debt deal, it will have to rope in an Indian investor as well, since foreign airlines are not allowed to have management control of Indian carriers under the FDI rules.

Jet Airways has also appointed RBSA Advisors to do a valuation of the company. Sources said this is being done as a precursor to the airline firming up a financial deal with either Etihad or any other prospective investor.

When contacted for a confirmation on RBSA’s appointment, the Jet Airways spokesperson said “the company does not comment on speculation”.

A senior RBSA executive, however, confirmed that it has been hired to do the valuation by the airline.